Jun 26, 2007

Second Life Business Exodus?

In its July 2 issue, Forbes magazine is running a story called "Sex, Pranks and Reality" about the shifting tides of doing business in Second Life (also picked up by Kotaku and other blogs). The article discusses the ups and downs of several real world businesses that are or have been in Second Life, concluding with:

Wells Fargo stopped using Linden Lab's clunky technology to run the financial
company's virtual Stagecoach Island (from its own Web site) four months
after setting it up in September 2005. It no longer has any connection
with Second Life. Laughs Erik Hauser, creative director of Swivel
Media, Wells Fargo's digital agency: "Going into Second Life now is the
equivalent of running a field marketing program in Iraq."

This PR backlash, while not particularly unexpected, isn't great news for Linden Labs. But what does it mean for virtual worlds in general as operators try to move beyond their "men in tights" roots? As the difficulties of courting both user-generated content and mainstream business (or education and other non-entertainment sectors) as key constituents become clearer, what does this mean for the evolution of virtual worlds? How long will it be before companies stung by this experience like Wells Fargo decide it's once again time to venture into virtual worlds for business?

Comments

It's true that developing in Second Life can be challenging. However, the fingers of blame can be wagged in many directions regarding some of the recently reported "failures".

1. Many developers carry the ability to design beautiful places of wonder. However, they lack an intimate knowledge of the global SL community and their habits.

2. Moving data in and out of SL can be sketchy, but not impossible. Smart coding allows our clients to support transactions to the web consistently. Research and development goes a long way.

3. Simply transporting a real life firm into SL is not enough. This is a medium that begs for innovative entertainment and fun. Why should I visit the virtual store of real life clothier to buy exact copies of their actual products? Why is that fun? It's not. However, I may want their logo tattooed on my virtual ass (prolly not, but maybe).

In conclusion, users visit Second Life and related worlds to escape the boring world. Leave the boring world behind and invent 'till it hurts.

I think is going to be difficult for worlds that are trying to position them as defenders of free-speech to retain companies with strong brands as active contributors. I companies like the idea of virtual worlds being like a Coca-Cola commercial from the 1980s. Maybe they'll accept being there in a passive fashion (advertising like), but to be seen as active contributors seem more dangerous once they realize that these worlds are out of control. Maybe one could use movies as a metaphor. Product placement in a controversial movie isn't bad for the brand, but if they actively help with the production of it with no control of the content...?

In the end it's all about different needs for image building, new brands wanting to look cool with older teenagers might benefit from involving themselves with controversial stuff. Especially if the controversy involves a generation split.

(I guess the term UGC is appropriate in this context, but I really dislike the inclination to view users as generators rather than creators.)

So the head of the marketing firm for a company that decided SL is not for them, doesn't like SL and the rest of the world is supposed to consider him an unbiased observer?

Whatever the reasons they left SL, and I'm sure they're good enough for them, they're hardly good commentators on SL, and, by their own admission, they're 18 months out of date with things in SL - that's quite a few major and loads of minor updates later.

SL isn't the perfect answer, by any stretch of the imagination, but for most of us it's a better one that Active Worlds (where Wells Fargo now hide I believe). There are lots of companies still happily in SL and expanding in SL, a few disgruntled companies probably won't be enough to change that. If it makes the ones considering dipping their toes into SL think about how to avoid the mistakes of Wells Fargo, it's a good thing for us all!

"1. Many developers carry the ability to design beautiful places of wonder. However, they lack an intimate knowledge of the global SL community and their habits."

You mean : one have to first actively play for at least 18 months , before to have a chance- any chance- to do Real Life Business in SL ?

"...SL isn't the perfect answer...." To what question, Ann Coulter ?!

My conclusion on the article : this is a backslash
not only for SL - IF indeed it is a backslash at all- but for Wells Fargo as well : it tells that WF thought they can make real biz in SL and took them so much time to realise they're wrong.
WF could be avoiding such mistakes , just reading TN 's Archive.

If Sony is anything to go by, while marketing is cheap, companies will continue to attempt to advertise in as many "hip" ways as possible, regardless of how many times you are outed as fake, insincere and idiotic by the audiences you infiltrate.

The question is how long Second Life will remain a media darling for. Once the excitement about "[Company/Country/Entity] has opened a a virtual embassy in Second Life" dies down, and maybe if this backlash begins, as I think it will, then the marketing dollars will stop coming and the companies looking to "connect with the youth of today in a synergistic way that really illustrates our amazing abilities to interact" will jump onto something else. I wouldn't be surprised if that Something Else is Playstation Home. At least in that world, there won't be an opportunity to have flying penis' hurled at you.

Again, Wells Fargo was never *in* Second Life, they merely licensed the SL technology and ran it on a separate server inaccessible by the rest of the world or its community. As I recall (I caught a brief demo), they never even had a sandbox/free creation area, or used Linden Dollars. Either the Forbes author doesn't understand these distinctions, or is intentionally fudging things to fit it into her thesis.

They apparently see even a vague association as a damage to their reputation. By stating in public why they are pulling they mean to create as much distance between this "taint" and their brand as possible.

(Or rather implying why they were pulling out. Even though they might have left for other reasons, the message is clear: we don't want this "taint", make sure you journalist don't associate us with this.)

In other breaking news, the horseshoe industry scoffs at the marketing potential of newfangled auto parts stores. Laughs Isell Tack, creative director of Horsedrawn Buggies: "Marketing in auto parts stores is the equivalent of running iceberg sightseeing trips on the Titanic."

Am I shocked that Wells Fargo couldn't develop their own virtual island using Second Life technology? Hell no. Shoot, companies who build mmorpg's for a living are still trying to figure out what works and what doesn't (See Sigil/Vanguard, SOE's NGE, Auto Assault...I could go on). How is Wells Fargo's "digital agency" supposed to be figuring it out?

It's a stupid article. If it scares mainstream corporations away from "doing business" in Second Life, fine. I'm not sure how much value marketing is adding to Second Life or other virtual spaces anyway. One of the reasons I enjoy mmorpg's is because it's not yet polluted with mainstream marketing. The longer they stay out, the better. Part of evolution is shedding traits that don't assist survival. Jamming an old mass media marketing model into virtual worlds isn't passing the Darwin test.

Okay, this wasn't about Wells Fargo; don't get distracted by the single point. They were just one (the final) example used in the article, which I encourage folks to read. I also was hoping this could be something other than an exchange of "boo!"/"ha ha!" posts from SL apologists and critics. SL is currently the public/MSM lightning rod for business-in-virtual-worlds and topics like user-created content (an expensive PR lightning rod the company itself constructed), but this issue doesn't begin or end with SL.

To Hamlet's point, the Forbes article does say that WF used LL's "clunky technology... (from its own Web site)," something I didn't pick up on when reading the article. OTOH, that really doesn't make any difference: clearly LL has been trying to demonstrate their software as a viable platform for business, in and out of SL, for which WF is hardly giving a ringing endorsement. And it was their digital agency, which presumably does understand the difference between the Web and SL, that made the comparison to being in SL like "running a field marketing program in Iraq." (Also, having read your blog post, Hamlet, you're straining at fleas and doing your own bits of dissembling, bypassing the much larger points presented in the article.)

In the Forbes article, which will be read by many business decision makers, the travails of companies like Nissan, NBC/Universal (which had its name used by an S&M parlor in SL), Starwood Hotels, the John Edwards political campaign, and of course Wells Fargo are highlighted. These are probably not the only companies who have had trouble there. And maybe many others have had great success -- but we aren't hearing those success stories, despite LL's phenomenal PR machine.

If virtual worlds are to become a widely used "metaverse" (as is sometimes taken almost as an article of faith in these parts), regular folks not interested in either whacking things with swords or in various forms of sex play are going to have to find something in virtual worlds compelling, and business is going to have to see real value there. The former has been in some doubt, though I think there's still hope. This Forbes article shows that the latter isn't a slam dunk either.

The case for brick-and-mortar businesses operating in a virtual world has not yet been made. The case for the metaverse has not yet been made. I believe the future for virtual worlds (game-like and not) is bright, but this is not something any of us interested in this area can take for granted.

The real question is why any firm would actually get into Second Life. What does it get them? The technology is clunky and unreliable. The community is, if anything, hostile to corporate branding. You can't make real money in the corporate sense in the game, no matter how much Linden publicizes the few people who make a "small business" living.

The only advantage I can see is as a PR stunt. Not for the PR you get within SL, but for the PR you get for doing SL. Which obviously will wear off.

What has interested me is how we have seen a lot of industry giants (Microsoft, IBM, NBC) experiment with virtual worlds, while the middle-market players (Apple, Sci Fi Channel, Univision) have seemed the shy away from VWs. Perhaps its just that larger corporations have more money to play with (and potentially waste) on a $50-80K sim build than a smaller competitor. But its the reverse of what I've been forecasting for VW business activity.

Also, let's be clear about the potential business applications with VWs, which are quite distinct. I,E.:

Christian Renaud and I had a discussion about this at Ludium. The reality is, network television advertising, for a 30-second spot, is going to run you $25-30K to run at 3 a.m.; 200-300k to run in primetime. Full-page print ads start in for decent circulation around 15K. Not to mention the costs for designing/filming the ads.

An island in Second Life? It's still $1,700. I don't know how much it costs to retain one of these design firms to put your presence together, but I don't imagine it runs much north of $10k for a pretty spiffy presence.

And it's yours. Pay a relatively paltry monthly fee and you keep this presence in perpetua. If SL blows up to 900,000 concurrent users, you STILL only paid $1,700 for that island. Not only is it a pretty good bargain right now - Gorean slaves still have bank accounts and drink soda! - but if it were to continue to grow, it would be an unbelievable steal for your marketing department.

The given truth in advertising is that it only takes three "impressions" to sell a product, give or take some for quality. And this impression is definitely a quality one - the average time a user spends on an island, Christian said, was around 15 *minutes*. Show me an ad that someone spends 15 minutes looking at.

Even setting that aside, the first mag/print outlet that calls you up and interviews you on how trendy you are makes for a decent return on investment. Good PR and representation in print sources in a positive light is worth its weight in gold.

Sutro wrote:
And it's yours. Pay a relatively paltry monthly fee and you keep this presence in perpetua. If SL blows up to 900,000 concurrent users, you STILL only paid $1,700 for that island. Not only is it a pretty good bargain right now - Gorean slaves still have bank accounts and drink soda! - but if it were to continue to grow, it would be an unbelievable steal for your marketing department.

If it blows up to 900,000 concurrent users (it won't in its current form at least), then you'd just have that much more content to spread the users among.

900,000 concurrent users doesn't matter much if none of them have a reason to show up and check out your stuff and/or don't know your stuff is there and/or can't find it.
--matt

Sutro said: The given truth in advertising is that it only takes three "impressions" to sell a product, give or take some for quality.

Nope. The accepted, "common wisdom" of marketing and advertising is that it takes three impressions to even be noticed. Not to sell something. That can take dozens of impressions, plus "sales forward" events, such as being able to try something before buying, a friend's recommendation, etc.

Anybody looking to compare SL ROI w/ even limited MarCom efforts (email campaign, direct mail, local advertising) is barking up the wrong tree, I think. And, yes, lots of the "Hey! We're here!" industry/business crap going on in SL is exactly of that nature. You can't look at SL as a media outlet and find it to be a good bet compared to spending that same amount on advertising, PR (unless you get mentioned in a PC Mag or Business Week story).

Discounting the "earned marketing" (PR) value of a presence in SL, and accepting as fact that not enough people will even see your "stuff" to generate a good return relative to other media... is there a good business reason to be in SL?

I'd say, unreservedly, yes. Two good reasons, actually.

One. The interaction you will get (if managed properly), is of a different sort than is available in any other medium. The ability to host virtual events, create virtual merchandise, clubs, groups, games, etc. is incredibly cheap compared to doing something similar in RL. I don't give a rat's ass about the number of random furries/goreans/jedis wandering into my store front. I love the idea of being able to *invite* worldwide customers to a virtual exhibition or event. To say, for example, "Between 2pm and 4pm eastern, every day, we'll have somebody at our booth who can literally walk you through our new XYZ while answering questions."

Most of the companies in SL aren't doing more than setting up stalls and hoping for traffic. Dumb, dumb, dumb. It's not an eyeball medium, it's a location medium. Think about it more as a place to put vending machines, clubs, gifts, etc. related to your business.

Two. SL forces you to think differently about your brand, products, services, etc. Having RL execs forced into considering good, virtual applications for the brand or customer interactions is a great way to stretch the old think bone. What can you do in SL that you simply can NOT do in RL? What is the meaning of our brand in a fantasy world? How could we interact with people in ways that they would find intrusive in RL, but here are kinda fun and goofy?

I don't know if SL will survive in the long run. But something similar will. And companies that experiment (and, yes, fail) will know more about these spaces than those who wait too long.

Fair enough, but that's still compelling reason to get in on the ground floor now and begin creating reason for today's user numbers in expectance of tomorrow's, if they actually come.

And true enough, I don't expect SL to ever get 900,000 concurrent users and I'll hedge my bets that it never even gets 150,000. At the same time, the CPM for Second Life is really unrivaled in the marketplace as far as affordability goes. Whether you think those impressions are being made on a valid audience for your product is another matter, but all the same, the CPM is so cheap and the impressions of such good quality and length that it's still a pretty strong ad buy investment, in my opinion.

As a co-founder of a metaverse development consultancy (MDC), I have a vested interest in the success of Second Life, There.Com, Whyville, Club Penguin, Areae, and other social virtual worlds. Please keep that in mind when reading any of my comments in TN on these issues.

Clearly, many projects in Second Life have turned out to be dismal failures. As in the early days of the web, we see cases in which companies settle for a rapid public relations hit and then fail to nurture the community that is needed for a vital presence. There are many ghost towns in Second Life.

Andy said it well in the final paragraph of his comment: companies who are experimenting with Second Life now will know more about virtual worlds than those who are standing on the sidelines. In my opinion, this is equally true of commercial efforts in places like There.Com and Whyville.

There seems to be a polarized discourse which pits Second Life zealotry against knee-jerk rejection of commercial activity in virtual worlds, and it's not terribly productive. Most reasonable observers will agree that there has been excessive hype, but it is inaccurate to suggest that there is anything resembling an exodus from Second Life and other virtual worlds.

As one who works in the industry, I can report that commercial interest continues to accelerate. I've also noticed that our clients (and potential clients) are far more savvy about the limitations of Second Life than web-development clients were back in the go-go days of the late 1990s. Many people, on both the client and development side, are trying to figure out what works and what does not.

I recently went on leave for one year from a wonderful tenure track job because this space is so exciting right now. There is so much work out there -- not just the development work for paying clients but also the open-source experimentation and figuring out best practices and usability guidelines for virtual world design.

Honestly, I have not been so excited by new media since I first discovered USENET. There is just so much work to be done on all fronts, and it's really quite enjoyable.

Sure, this is just an outgrowth of MUDs and the virtual community rhetoric of the previous decade. But that's part of what makes this so exciting. It's great fun to dig into the extensive research -- articles like "Inn-keeping in cyberspace" -- to extract principles that will guide contemporary design efforts. All of us (developers, game designers, TN academics, notorious polemical gadflies who rent property in Second Life, journalists, and users) are building the foundations of the Metaverse, and everything we do and say plays a part in the world that we're creating.

As a meta-comment, I sometimes fear that the SL conversations have been unfortunately sidetracked by a tendency to focus on the "make millions of Linden dollars" rhetoric that accompanied Anshe Chung's rise to fame. Since so much of TN was focused on the very intriguing topic of RMT, it was natural for this to become a recurring meme. But the exchange of Linden dollars is one of the least interesting aspects of Second Life.

In all of this, there is room for plenty of criticism. From Ted, from Clay, from Prokofy, and from the usual gang of contributors to TN threads. My hope is that we can be critical and clear-headed in ways that allow us to enjoy speaking about the world of possibilities presented by *all* of these virtual environments.

@Morgan: I can buy decent online advertising for $10-$120 for 1,000 impressions, depending on the venue and size of the ad, quality of audience, etc. CPM then being $10-$120. Call it $60 on average.

I can get a column-inch ad in a major metro daily, in front of 200,000+ viewers, for $220. CPM = $1.10.

I can do a decent DRTV campaign for a month on cable for about $40,000 (airtime) + $15,000 (cheap production) with somewhere in the neighborhood of 500,000 impressions. CPM = about 10 cents.

Let's say I pay $1,700 for an island on SL, and some additional content. Plus $300/month land usage fees and (let's say) $100/month on content. For a year, call it, then, $6,500.

How many people are going to wander by unless I advertise it somewhere else to begin with? So, to be fair as an ad venue, we have to assume people will wander by, relying on in-game search and WOM advertising.

To get the same CPM as Web rates ($60 CPM), you'd need around 100 people to wander in per year and absorb some kind of marketing message. OK, that might be reasonable. To get the CPM for print, around 6,000 people and TV, around 60,000 would need to come by. And that's assuming no additional costs for having live people on your site, really major content development, advertising the site elsewhere, etc.

It's cheap to get in...but there's a reason. Also, Web ads are targeted based on nice criteria like geo, key words, etc. You've got no idea if the eyeballs in your SL venue are in Maine or Moravia.

Again... I'm not saying being in SL is a bad idea; I think it is a good one. But comparing it to ad rates in other media isn't a great idea.

If you can create an experience that is meaningful (and share-able!) in SL, you will get something much better than good CPM, I think. You'll get solid brand awareness and a good sales-forward event. But just sticking up a hut and assuming people will come by, look in, and watch your canned video isn't a great idea.

Absolutely. That's why I put in paying a good $10K or so on having your SL content professionally developed.

You're using the example for print, though, of a 1-inch column ad; I would daresay you can't get much of an impression out of that. To give a visual equivalent for those not accustomed to the verbage, that's like the size of the ads for strip clubs that advertise in metro dailies in the sports section.

And I don't necessarily think that having 6,000 people visit your island in Second Life is too out there. Definitely not easy, but then again, it's incumbent on the creator to make a compelling user experience that focuses on good brand utilization in fun ways.

As far as targeting goes, I agree, it's scattershot, so it's really only appropriate for macrobrand-type advertisers to which geography is somewhat irrelevant (such as Toyota.)

The problem with comparing the CPM numbers for TV is that you then have to throw in the (20ish? I forget the exact number) percent that are actually paying attention to the telecast at the time, and that it's a very brief window of exposure.

(Even so, television (and even moreso radio) will always be kings of raw CPM - I was absolutely incorrect in my original post in that regard - but at the same time it's a transitive message with, for most advertisers, little value beyond brand reinforcement.)

I think if you want to really drill a little past the raw CPM, let's take the 20 percent of the TV viewers - turn that 60,000 into the 12,000 that's more reflective of reality, and then consider the time per-instance in SL as opposed to the 30 seconds.

What's important is that rather than going off of circulation or ratings for traditional media, in SL and the Web, I really CAN count how many eyeballs saw my message, and in SL, that's a long time.

Heck, technically, every given space where your brand appears within SL could be considered an impression. I don't like to look at it that way, but still.

One thing SL and its derivative kin, if they do end up becoming less of a curiosity and more of a mass medium, will show us is that CPM is going to be harder and harder to quantify when we talk about these virtual worlds.

Andy Havens wrote:
I can buy decent online advertising for $10-$120 for 1,000 impressions, depending on the venue and size of the ad, quality of audience, etc. CPM then being $10-$120. Call it $60 on average.

I'm not sure anyone's paid $120 CPM since 2001....

We never pay more than $5 CPM for web advertising, and often it's around $1 CPM.

As you say, it does depend on the venue, size of the ad, quality of the audience, how targeted the audience is, etc, but is there anyone out there paying even $50 CPM anymore on any scale, much less $120?

I think the estimate of how low the number of visitors to your SL presence would be is pretty off. I mean, 600 in a year, "probably"? That's less than two people popping in a day. The last available numbers I've seen are 30,000 concurrent, 150,000 unique accounts (although I suspect one or both of those is wrong because 1/5th concurrent-to-active seems like an awful high ratio.) That's not even accounting for yearly churn.

To get your CPM print number - a single one inch ad in a 250k metro daily - four percent of the *unchurned* userbase, in the time of a year, would have to visit your area once. I don't see that as being very hard. I don't even see 8 percent, your television benchmark, as being impossible.

Note that I'm not a Second Life supporter or even really a fan, I just think that it's an excellent source of cost-per-dollar value.

Numtini said: "The community is, if anything, hostile to corporate branding."

It sure seems like the community enjoys the corporate brands themselves, though. /Someone/ is buying Ferarri's or Versace sunglasses (and the like) for their avatars. Corporations would be crazy not to try to capitalize on that -- even if it is clunky right now.

Shopping cart software and online stores were clunky 10 years ago. (Heck, Internet access in general was pretty clunky!) Now, a company cannot be taken seriously without /at least/ a website. In fact, most consumers expect an interactive website appropriate to the relevant industry.

It took time for the Internet/www standards to balance out and for companies to get a handle on the platforms. Remember, much of the problem was scaleability -- not quality of design or idea.

A more relevant question is what has the involvement of "business" got to do with the evolution of virtual worlds?

It really doesn't matter. In the specific case of SL, nobody would even miss a step if every "real" business left tomorrow. Not that you could call such a small group of glum faced people in suits getting on the bus out of town anything like an "exodus".

If VWs continue to evolve in ways that allow the users to define and create their own experiences and "stuff", then there will always be a way for business to do the same in slicker ways, always a door open if they want it.

SL's VC investors are certainly concerned over what this indicates about the scope and timing of harvesting their investments. I'm not much of an insider though I did talk to a GP of one of SL's initial VC's a couple weeks back and he was notably cautious in his assessment of how well LL is doing as a portfolio company. He referenced the revenue model.

This directly relates to the defection of anchor customers from their service. Don't underestimate the tremendous importance of these big reference customers to both investors and to follower-customers. There will be no ad revenues to reap if there are no big accounts willing to pay ad dollars worthy of notice. To investors, pretty much everything else, while perhaps true and encouraging, is irrelevant. I think LL's early stage investors are running out of time before they start to seriously put pressure on harvesting their investment. That would probably manifest in seeing a drastic change in LL's management, a sale of LL to a large corporate, or in the worst case an abandonment of the entire project. In the latter case I'd imagine SL would live on in some open source sense, so that may ironically be the most preferred outcome for the SL faithful and true believers.

randolfe: "There will be no ad revenues to reap if there are no big accounts willing to pay ad dollars worthy of notice."

Not sure that's true. There's no advertising in WoW, and it makes tons of dough.

I don't know if Linden's plan for monetizing SL ever included the idea that people will pay for advertising space vs. other kinds of space. To my mind, there are probably many more organizations willing to use the space as a communications and virtual "gathering" venue rather than an ad platform.

@Morgan: I don't disagree that once a user is in your SL space, you have a greater opportunity to make both a brand impression and, possibly, even a sales event when compared to other media. I don't agree, however, that every visitor to a SL site would even count as an "impression," unless there is a very large, specific, targeted (probably obnoxious) message on the outside of your build.

We have nearly a century of print ad history and data that shows what kinds of ads at what sizes for what prices make sense, and additional data on how to craft appropriate messages. Not all advertisers use these, but the info is there. We have 50+ years of data on creating multi-media campaigns where the evaluation of CPM by media is pretty complex, and where the various merits of TV, radio, print and outdoor are compared on all kinds of criteria. We've got about 10 years, now, of interactive (Web) thrown in, too... which is badly understood by most in the context of a broad media package buy. The success of Google has more to do with bringing many, many more people to the table than it does with the relative value of online vs. traditional... though most companies now realize the value (and many of the differences) of both.

We know almost nothing about the value of a VW property in terms of its advertising pull, especially in comparison to other media. I, personally, think there is value, as I said above. But if you try to make the case to seasoned brand managers that some reasonable percentage of the 7 million SL residents or 45,000 online folks are going to "see" their creation... it is, I believe, a lost cause at this point.

How many locations are there in SL? How much time does a user spend at any one of those? Once they establish favorites, at what rate to they visit new locations? How much time do they spend and what criteria do they use to determine whether or not to come back? Is just "showing up" and seeing a brand message a positive experience? Or is it negative, if there isn't "anything to do here, and nobody to talk to."

A thriving, fun, interesting SL space could, yes, be a huge marketing hit on a variety of levels. I think you could craft specific events/locations for pre-existing customers and have virtual "shmooze-fests" that would show a huge ROI. Lots of good, creative ideas for beneficial marketing uses of the space.

What an interesting set of comments -- reminds me of the early days of the web when the expectations set for the developers of web sites was . . . "Create it and they will come" . . . to 1) see my stuff and then buy my stuff or 2) understand what I do so I could sell my time and talent.

As we look back over the last 15 years of the Internet the real 'killer' applications are 1) email, 2) information portals with constantly changing data, 3) communications hubs used for social networking and the sharing of information created by individuals and 4) the emerging use of internet based voice and video communications.

The common link is communications - one to one, one to a few, one to many.

And when you enter Second Life and have your first experiences of interacting with others through an avatar it still comes down to communications - one to one, one to a few and one to many -- with a twist; your avatar and those of the RL individuals you are communicating with not only communicate but have shared experiences through the power of the visualization based on the creations of those who build and script the objects of Second Life.

For over 50 years, television has brought to all of us the power of sharing the experiences of others from any place and at any time. However, this medium is passive -- we just sit and watch. In Second Life we participate through our avatars in creating and shaping these shared experiences.

In Second Life the ability of each individual to control their avatar makes for experiences that emulate real life or go way beyond what might be possible in the confines of the natural forces and social structures of real life. This is incredibly powerful and can enhance (or detract from) the way we communicate with each other, interact with each other, or develop our relationships based on shared experiences.

The Second Life technology has the potential of being one of the future 'killer' applications of the business world -- not as a mass marketing tool but as a platform of communications and shared experiences especially at the small group or team level.

Effective team leaders know how to assemble their team members to plan, solve problems gain individual commitments and drive personal accountability in delivering the results expected of the team. Second Life gives team leaders the ability to assemble their team's members, through their avatars, around a table at any time without regard for where in the world the team members are located. And the ability to have a virtual team office or workplace to develop, share, and store team information is indeed powerful. Working on virtual projects can also help focus team members and build teaming skills.

Organizations that understand the dynamics of forming, leading, engaging, empowering, and holding accountable their real life teams have much to gain from the development of team process that use Second Life as a power tool to drive the types of results their shareholders and stakeholders expect.

However much will need to be done by these organizations to develop the leadership skills necessary to form and guide the teams who carry out RL work using Second Life as a support tool. Those organizations that 'get' the power of teamwork and the potential of the virtual platform of communications presented by Second Life will emerge as leaders in their industries and in the eyes of their stakeholders.

When focused on the real power of the Second Life technology as a team and organizational leadership tool, it is indeed a bright future for the virtual worlds of today and tomorrow.

The business exodus from SL isn't surprising. Many of these companies bought into the hype from BusinessWeek ("Virtual worlds abound in useful business applications"), other mainstream business outlets, and PR agencies. They hoped for amazing branding opportunities, new markets, new customers, better engagement with existing customers, etc. They didn't expect ghost towns, hostile receptions, and clumsy user experiences. Now they're packing up their sims, and moving out -- and you'd probably do the same if it were your money, your staff's time, and your public image that was at stake.

A few people have defended the SL business potential by making comparisons with the traditional corporate Web world -- Virtual Worlds are still at the 1994 development stage, the SL CPM is competitive, etc. But it really isn't the same. The WWW thrives on asynchronous communication and interaction. A standard online shop can generate revenue 24/7 with very little live oversight. The same cannot be said for Second Life. Sure, you can have a shop display, an advertisement, or a demo, but virtual worlds are optimized for live interaction. Communicating with customers requires live engagement for most businesses. That means time, and time means money. With 40,000 concurrent residents, many of whom are in SL to meet friends, explore, create, and have fun, is it really worth it for IBM or Wells Fargo to have staff avatars on hand to greet the occasional resident wandering onto their islands?

I've run the numbers on SL and can't figure out for the life of me how they expect to get the cash flows necessary to meet their investors' expectations of return. Keep in mind that an early stage VC doesn't invest unless they're looking at usually well in excess of 50% IRR. By the way, that's why MMOGs are such a difficult funding proposition. It's a blockbuster economy, and unless you're WoW, you can't produce flows that create enough valuation. Alternatively, unless you're SOE, you don't have a scale business.

Given that most SL's "millions" of users are free-riders, only occasionally buying a few $USD worth of L$ tokens -- even that LL only reaping a few points per buy off of -- I'm not seeing the sources of revenue. Unless they create a vibrant ad revenues business and perhaps a strong corporate subscription base, the whole thing is really just an overfunded science project (from an investors' perspective).

The other option is to become a hosting software type of company and sell the services out to academia, etc. But that's not the strategy they're pursuing with their whole insistence on running a fat-client, one-world virtual dystopia.

I still maintain that minting a make-believe currency and peddling it as genuine money is central to LL's being stuck in a really bad strategy rut. There's so much potential with this platform, but it can't happen under the current regime.

@ randolfe, while i mostely agree your opinion , still , there's a problem : any biz starts with and is based on mutual trust and respect.If the involved parts have not these , then it's not a biz but a scam. I tell you very honest, there's no potential left in SL / Entropia ; both are the same : the biz-model ruined the concept.The harm is already done , and it doesn't matter anymore how many months/years/decades they will " survive ". The concept is already compromised.

That would be the $1650 and $295pcm on those thousands of private islands. The ones full of "freeloaders" who are paying L$ and paypal to land barons. LL saves bundles of money- they only have to provide CS resources to one person who represents the income of 16-20 per sim. You don't need 20 people to pay you $15 per month, when you can get one person to pay you $300 on their behalf, and let them deal with the drama.

In any case, two guys leaving a one horse town isn't an exodus. It's the carnies moving on to the next town.

@randolfe: I don't disagree with you at all in terms of the ROI for investors. Then again, nobody (well, few) thought wireless telephony would reach the masses or that people would pay $40/month for broadband Web access in any kind of serious numbers.

I've said before (in our discussion of what is "necessary" for a successful VW) that an economic platform, in my opinion, isn't something you absolutely need to have in order to stimulate user activity and/or profit. To my relatively uninformed eye, it seems that the main source of revenue for SL is based on virtual land sales and the subsequent trickle-down into rental revenue. There are, I know, some people making some decent money on content creation but not enough, I think, to fuel an entire economic ecosystem.

I hope it works out for Linden, as I find much of what is happening in SL to be really cool and interesting. But as of yet, while there are compelling reasons for folks to get in -- even from a business standpoint -- I agree with you on the "science project" analogy.

That may be true, but it isn't representative of a real revenue scaling opportunity unless there is serious corporate participation. The "selling digital land" revenue model isn't sustainable, and will quickly experience a price-point drop to exactly the marginal cost of providing those CS resources.

Remember when random big businesses started putting up web pages? They were just useless ads for the company that nobody looked at. Maybe some even went so far as to put some basic product information up.

SL is in that stage. But where will it go from there? We don't know really yet, the medium is too different from the web. What can a business do in SL that it can't do on the web?

Maybe virtual worlds aren't the place for established external businesses to do their thing. Maybe only businesses internal to the world can really take advantage of it.

"I still see people failing to ask the important question. Do we *want* these sorts of companys in our play zone?"

I can tell you the answer : the vast majority of players doesn't " want ". And you're right , this is why WoW is so much " wealthier " in players and revenues. The players are simply sick of Corporates taking their money/work/time away in RL . In order to make biz / commerce in a VW, first you must have to " workers " to produce the goods. Those workers are the gamers playing for fun. From the momment when you have in game 90 % wanna-be traders and 10 % gamers , you can kiss your VW good-bye. And dont forget : from the " traders " you have in a game, 90 % of them are misleaded and misguided by the hype PR and false promises of " ownership " and " make a fast buck playing a game ".

I wrote a commentary on the Forbes article which I think hits some points no one here has touched.

One of these is that if the world is converging into a fully open and interactive 3d marketing environment, marketing folks had best get used to the idea that if they think sex sells (and who doesn't?) then they have to get used to *inhabiting* a world where people interested in sex are going to walk into their VW office.

A huge percentage of the web is devoted to sex, gambling, and all the bits that these companies find distasteful in SL. But on the web, in video or print advertising, the dude with the can of beer getting worked up over the hawt blonde in your SUV ad isn't going to walk into your offices looking for the model.

It's like karma come to roost. Marketing people (and I am one...!) don't usually have to live with the reaction of an audience. If people don't like their methods, an email might be sent to a round-file email address. But in SL, they have to deal with their whole markets in person. The target demographic, people of average interest, and people they aren't interested in ever seeing in their lives.

If there is convergence among the web, VWs, social networking sites, and games -- they soon won't have much choice. There will be a real twist of mindset for most marketing folks as they realize that audience management may mean dealing with a crowd in their virtual lobby.

I'll quote something written by a friend (sadly passed away in his 30s from renal cancer :( ) in 1999 about exploring drains under sydney;-

-------------------

Why go in drains?
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
In life, you make choices. You can stay in bed and take no risks, or you can
go out and get a life. This involves the taking of risks, telling of yarns,
breaking of silly laws which restrict your freedom, finding out things of an
unusual or interesting nature. Now, some people take drugs, some people watch
TV, some people drive cars faster than the posted speed limit, some people
get heavily into teletubbies, some people play golf.

Since we find these things not very interesting, we explore drains. We like
the dark, the wet, humid, earthy smell. We like the varying architecture. We
like the solitude. We like the acoustics, the wildlife, the things we find,
the places we come up, the comments on the walls, the mazeÄlike quality; the
sneaky, sly subversiveness of being under a heavilyÄguarded Naval Supply base
or under the Justice and Police Museum.

Drain exploring is cheap since, despite there being a $20000 fine (a bit harsh
really) for doing it, it is almost never policed.

We enjoy thumbing our noses at petty bureaucrats and puerile legislators, and
their half-baked attempts to stop us going to the places where we go... places
they built with our tax money.

We like the controlled nature of the risks involved. We like the timelessness
of a centuryÄold tunnel, the darkness yawning before us, saying "Come, you
know not what I hide within me."

We like the stupid looks we get when we mention it at cocktail parties.

We like the sploosh sploosh sound when we walk through the waters.

We like going where the bank tellers and council clerks and ticket officers at
the SRA never go.

We like telling the authorities that we are software programmers, analytical
chemists, civil engineers, telecommunications specialists etc, when they ask.

We like the whole thing and the pettiness of its illegality and poor public
perception is beneath us and totally irrelevant.

We are not stupid, we don't like being protected from ourselves, it hurts
noÄone, we like it, so we do it. Hear us cry...

Hwo cares ? I like mcdonals. I like aussies. I dun like drains. I like to have money to pay for what i like. When i dun have the money, i'll steal, lie , cheat and kill for what i like . So what ? We all are the same.

Just wanted to point out that many of the recent comments seem to be assuming that there is, in fact, a corporate exodus from Second Life and other virtual worlds.

With all due respect to Mike's well-written post, the Forbes article did not claim that there was an exodus. It provided anecdotal evidence from a handful of corporations who were disappointed with their experiences, and it included words of advice from agencies that continue to work with Second Life.

After discussing Wells Fargo's unfortunate experiment with Stagecoach Island, the article ended with a funny comparison of Second Life to Iraq from Erik Hauser at Swivel Media. Keep in mind that Hauser's company was responsible for the failed experiment in Second Life. There are plenty of possible explanations for the problems encountered by Stagecoach Island in Second Life:

+ The island was essentially a walled garden with no connection to the broader world of Second Life.

+ The project was initiated two years ago, when Second Life's hardware requirements were out of reach of many mainstream users.

+ Access to the island was provided by invitation only, making it even more difficult for the island to reach a broad group of people.

+ The project was targeted at youth, not at adults. (Most analysts agree that Second Life is not an ideal platform for reaching youth.)

Blaming Second Life for the failure of Stagecoach Island to reach children is like blaming the Disney Channel for not effectively selling orthopedic shoes and retirement plans. :)

The main point of the Forbes piece was that "Second Life's virtual Web world can be a weird, chancy place for real-life brands." Few of us, whether SL boosters or SL critics, would disagree with such a claim.

Nice lively discussion! It is interesting to read everyone's viewpoints. Stagecoach Island was certainly not a failure. Not sure how it could ever be seen as such.

Wells Fargo piloted Stagecoach Island, its online virtual role playing
game that teaches financial education skills to young adults, with
Linden Lab, which is the creator of Second Life. Stagecoach Island was
never accessible through Second Life. We used Linden Lab's operating
system/platform to launch the pilot, which ended in January 2006. Today
we are using a virtual gaming platform from ActiveWorld Inc. in order to
expand capacity and flexibility since our main objective is to entertain
and educate young adults.

It was a decision based on our needs.:) The effort continues to be a tremendous success, and Swivel Media continues to use VW's for our clients. We think that they are an extremely powerful tool for marketers, educators etc.

We analyze what our client's business objectives are and we advise them accordingly.:) Hope that helps clear things up

whilst i would agree that virtual worlds (including second life) in their present state are not suitable for everyone, i would disagree with the article calling it an 'exodus'. to date, only two major brands have pulled out. one (aloft) following a tactical exercise and the other (wells fargo) arguable because they actually enter too early.

as of the end of june, over 100 major brands have entered second life. this growth is now being driven by european brands. this is a result of faster adoption from germany, uk, france and italy residents who (for many reason) see metaverses as an extension of their social networks.
more information is here:http://www.kzero.co.uk/blog/?p=857

picking up on dave levisons' point - he is quite correct, second life entrance should be driven by strategy not by design. design should be an output as opposed to an input in order to facilitate engagement.

In this area at least as much as in any other, perception can shadow or eclipse reality. If SL gets terrific press, the boosters all crow about it and the critics say it's unearned. If SL receives negative press in the mainstream media, the critics cackle and the boosters grumble that it's overblown.

My point in the original post was two-fold: First, when a major source of business news like Forbes reports on a few businesses tentatively trying out SL, the perception is that it's a flood, a gold rush (and SL has certainly ridden the crest of this perception well). When they or someone similar publish a story listing a diverse array of businesses -- hotels, banks, movie studios, car companies, clothing manufacturers, and political campaigns, among others -- not seeing value in or having left Second Life, this perception is also important. I didn't say this was an exodus; I recognized the likely perception and asked the question.

Second, I asked the IMO more important question about the broader implications. One of the reasons that I and others have been critical in the past of Linden Labs' PR tactics has been concern over a backlash that hits more than just them and which in effect damages the whole industry. If business leaders reading Forbes today decide that this whole "virtual world" thing was a fad and a failure -- and executive decisions are often made on less information than this -- this could set back efforts to integrate business and virtual worlds significantly.

I don't know that that will happen, and I hope it doesn't. But I think those interested in the progress of virtual worlds need to be informed not only about what is happening in them, but what is perceived to be happening in them by others.

It really doesn't matter. In the specific case of SL, nobody would even miss a step if every "real" business left tomorrow. Not that you could call such a small group of glum faced people in suits getting on the bus out of town anything like an "exodus".

Wow. Is that a commonly held view? I work for IBM wear a suit every work day in RL, and use SL to make presentations to my RL clients. I also run my own gallery in SL, with a small but reliably positive cash flow.

That seems an awfully exclusionary view of the world Ace. Are me and my colleagues, some of whom are the most brilliant people in the world, to be casually dismissed as "glum faced people in suits", merely because we are undeniably part of the corporate mainstream? Never mind that we work for one of the only organizations in the world that still pours billions every year into pure research.

I have never found assessing business projects on the basis of sound analysis to be mutually exclusive with flexing either my critical thinking skills or my urge to create, save in how they compete for my free time :-)

Via Bryan Alexander over at Infocult, a link to a post on the blog by Chris Anderson, author of The Long Tail. Turns out he's giving up on Second Life for reasons explored in the post -- but central to them is the lack of population density, an issue I mused on here on Terra Nova back in May, and one highlighted by an article in Information Week last week:

Following last week's clampdown on virtual casinos, the blogosphere is abuzz with talk of a financial meltdown and customer exodus in Second Life. ... And while not everyone agrees that there's a financial crisis brewing, some of the economic statistics show that the Second Life economy has taken a hit.

A chart from the Reuters Second Life bureau, for example, shows the number of U.S. dollars spent in Second Life per day declining from more than $2,000,000 on July 26, the day the gambling ban was announced, to about $800,000 on July 30.

Also, the average number of Linden dollars spent on each square meter of land in Second Life has also declined this month, from L$ 9.0743 in June to L$ 8.4875 as of Monday.

A similar article the week before in Wired hits similar issues, and also traces them back to low population density and lack of visible ROI for companies attempting to market products in SL.

In a similar though less quantitative vein, Anderson recounts his separation from the promised magic of Second Life:

Why did I turn on Second Life, after not only paying to build a Wired HQ in-world, but also doing a book signing and interview (shown) there, and even being nominated for a National Magazine Award for our "travel guide" to SL?

Well, partly it was the whole "there's nobody there" problem, which is of course just anecdotal. Like everyone else, I had fun exploring the concept and marveling at all the creativity. Then I got bored, and I started marveling at something else: all the empty corporate edifices. By day I'd speak at marketing conferences that usually had someone pitching SL services, complete with staged demonstrations (the "inhabitants" invariably paid employees). By night I'd go back to the same places, which had reverted to ghost towns once the demonstration was over. I couldn't understand why companies kept throwing money at in-world presences. Were they seeing something I wasn't?

Not really, it turns out. Despite an always spirited if sometimes tortuously spun defense of SL from Wagner Au (who said Anderson should consider the "value" of such things as "length of engagement in SL [and] quality of potential participant, considering Resident demographics as content creators, bloggers, early adopters, etc."), from Anderson's point of view, "in terms of things that I value, such as links, smart comments, traffic to my blog, etc, the SL appearance might as well have never happened. It didn't leave a ripple in the world I live in (AKA Real Life)."

And that's the measure by which companies will ultimately judge Second Life or any virtual world that courts their presence: is there actual ROI? Not is it cool, do you attract "quality" people, etc., but does a presence there perform better, dollar for dollar, than banner ads, radio ads, real-life viral marketing, and other ways of exposing people to your product?

I want this to work. It's important to me that we figure out how to bring virtual worlds and the corporate world together. But because it's so important I'm unwilling to gloss over the deep fractures in this relationship; this has to be viewed clearly. From what I can see now, it's not a pretty picture.

Maybe it can help, if i tell you what I feel when about to buy anything RL stuff advertised in a VW : " ...in RL i have a sort of guarantee, there are laws regarding the false advertising and all; in VWs, it's just a game, no liability ....i lose enough time in RL just to discover that a product is not exactely as it was advertised....".

Well, that's how i feel , and i agree it might be a wrong perception , but i can't help it.
I have this " reflex " to not trust doing serious business with anonymous entities in an unregulated environment.

On the other hand , i agree with you, Mike : if we could find a way to fix those fractures , it could work; the potential is there . I wish it to work , too.